The Amazon Question: Will Investors Trade Growth for Profits?

News that Amazon.com is slashing 1,300 jobs continued to rattle the e-commerce world Wednesday, as analysts said reduced sales forecasts from the bellwether company are a signal that the era of spectacular growth may have ended for the e-tail sector.

Amazon chief executive officer Jeff Bezos and other executives blamed a coolingU.S. economy for the slowing sales. However, analysts said the morelikely culprit is the company’s core business in books, music and videos, which has matured to a point where earlier growth rates are no longer possible.

Instead of sales of US$4 billion for 2001, as the company had earlierpredicted, Amazon said it would have sales of $3.3 billion to $3.5 billion, orgrowth of about 20 to 30 percent.

While still strong growth compared to other retailers, the 2001 forecast is well below the 50percent growth that had been expected and even farther from the 79 percentgrowth Amazon saw in the third quarter of 2000.

“I think it does cast a shadow over all of e-tail to some extent,”Morningstar.com analyst David Kathman told the E-Commerce Times. “If Amazoncan’t keep its growth rate going, the thinking goes, then nobody can.”

Growth or Profits?

Other analysts were still weighing the trade-off between profits andgrowth, with most lamenting the loss of top-line expansion.

“They’re on track to becoming an efficient retailer,” said Adria Markus, ananalyst with Epoch Partners. “But the fact that they’re cutting and shuttingdown facilities means that efficiency will come at the expense of growth.”

Slower growth may mean that Amazon stock will be stuck at its currentprice.

“It is probably fully valued right now, given what we expect goingforward,” Markus added.

Layoffs Weighed

Kristine Koerber, an analyst with W.R. Hambrecht, said the layoffs and theplanned closing of a Georgia distribution facility may disrupt business atAmazon in the short term and that slowing revenue may make true, long-termprofitability harder to achieve.

“We’re definitely disappointed in the guidance for this year,” Koerber saidin a research note. “We see some disruption near-term.”

Others discounted the claims by Bezos that the economy was themain reason for the slowdown.

“That can’t account for all of it,” Fay Landes, an analyst with Sanford C.Bernstein, told the E-Commerce Times. “There’s something else going on there.It’s probably just a function of the business maturing.”

Union Cries Foul

Meanwhile, Amazon faces questions on another front about its 15 percentworkforce reduction.

Just minutes after Amazon announced the cuts, the Washington Alliance ofTechnology Workers called a news conference to announce it would seek aNational Labor Relations Board investigation into Amazon’s job cuts in the customerservice department, where an on-and-off labor organization effort has been underway for nearly three years.

“We are going to call for and demand an investigation as to why the mostsenior representatives are the ones most affected,” WashTech organizerMarcus Courtney said.

Amazon said it had established a trust fund for laid off workers with $2.5million work of stock. Fired employees will also receive severance packagesof up to 12 weeks salary.

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